According to a Mercator Advisory Group report, global transit authorities are typically choosing contactless, closed loop payment systems to speed riders through their turnstiles and revenues into transit authority coffers. The challenge for card networks and issuers is finding a way to participate in that transaction processing flow. “Issuers and transit authorities view transit payments through very different lenses. Issuers want to accelerate the use of contactless transit payments, so we expect to see broader use of an issuer-based hybrid card model,” stated Melanie Broad, a member of Mercator Advisory Group’s Emerging Technologies Service and principal analyst on this report. “Everyone has an interest in moving from cash to cards, even the consumer. The trick is finding a payment method that satisfies all members of the transit payment process. This new hybrid card model will do that.”

International Transit and Payment: Finding the Contactless Breakout Strategy

Boston, MA December 15, 2007 – The top 20 global transit markets account for $37 billion in annual revenues. As mass transit systems continue to grow, that volume does as well. Long a cash-oriented process, global transit authorities are typically choosing contactless, closed loop payment systems to speed riders through their turnstiles and revenues into transit authority coffers. The challenge for card networks and issuers is how to participate in that transaction processing flow.

International Transit Payments: Find the Contactless Breakout Strategy examines the market size of the global transit industry, it identifies four transit payment models and identifies the model best positioned to meet the needs of the card networks, issuers, transit authorities, merchants and consumers. This latest Mercator Advisory Group report reviews the perspectives and drivers of card networks and their issuing customers, transit authorities and merchants as they each try to optimize costs and revenue.

“Issuers and transit authorities view transit payments through very different lenses. Issuers want to accelerate the use of contactless transit payments, so we expect to see broader use of an issuer-based hybrid card model,” stated Melanie Broad, a member of Mercator Advisory Group’s Emerging Technologies Service and principal analyst on this report. “Everyone has an interest in moving from cash to cards, even the consumer. The trick is finding a payment method that satisfies all members of the transit payment process. This new hybrid card model will do that.”

The report reviews current deployments of open loop and hybrid transit solutions in Asia, the UK, and the US. The impediments to broad usage of open loop contactless cards in what is a predominantly closed loop industry are examined. Finally, consideration is given to new capabilities and obstacles to broader transit payments including the roll-out of NFC-based handsets and the increasing use of multi-application smart cards.

Highlights of this report include:

Closed loop contactless transit cards have gained wide acceptance across the globe with the top twenty markets accounting for an estimated $36.9 billion in revenue.

While there is tremendous opportunity for contactless transactions in transit, finding the business model and delivery vehicle that satisfies members of the ecosystem is challenging.

Four payment models are identified and discussed with the winner a hybrid of open and closed loop features that can satisfy the business needs of all ecosystem members.

While closed loop systems currently dominate the market, the future of international transit payments depends on transit authorities’ decisions to extend closed loop systems to include other applications, provide an opportunity for open network payments or to work to deploy an issuer-driven hybrid payment card.

International contactless initiatives in Hong Kong, London, and Taiwan provide examples of transit applications that are currently addressing the transit market needs.

NFC and multi-application contactless transit cards are in consideration for the future of transit payment.

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